Advantages and Disadvantages of a SSC
SSCs serve as a stepping stone for individuals who are looking to save for the long term. Some individuals who begin saving with SSCs eventually transition to investing in CDs and other types of investments that require higher minimums.
The purpose of SSCs is to allow banks to cultivate potential long-term customers from an early stage. For instance, some banks encourage young investors to monitor interest rates and provide them with the option to increase the interest rate of a certificate once during a specific term.
However, it is important to note that these certificates intentionally start with a lower rate than they would otherwise. Additionally, it is crucial to keep an eye on SSCs that automatically renew, as some may do so at lower rates.
While some SSCs offer competitive rates similar to regular CDs with comparable maturities, it can be challenging to compare them as not all banks and credit unions offer these certificates. Nevertheless, the scarcity of SSCs is not a significant disadvantage, as young investors can easily find CDs that offer similar functions and returns. CDs are widely available across almost every bank.
SSCs typically assist young individuals in early money management and help them understand the advantages of locking up their funds to generate future returns. This educational experience equips young adults with the knowledge to make more informed investment decisions before they venture into purchasing stocks and other advanced financial securities as they grow older.
A small saver certificate (SSC) is a type of deposit savings account that typically requires a low minimum balance or sometimes no minimum balance at all. The primary investors in SSCs are usually children or young adults. These certificates can offer either a fixed interest rate for a set period or a variable rate that adjusts based on a specific benchmark.
The most common durations for SSCs are three, six, 12, 18, or 24 months. Some SSCs may have longer terms, extending up to 48 months. While SSCs are not as popular as certificates of deposit (CDs), they serve as a good starting point for young individuals to begin saving before delving into more complex investment options like stocks, bonds, futures, or options.
SSCs were introduced in the early 1980s to provide banks and thrifts with 18-month deposit options to compete with higher-yielding money market funds. This initiative aimed to encourage individuals to start saving with minimal amounts. Although SSCs are not widely favored, some credit unions still offer them, providing rates comparable to CDs with features similar to savings accounts. Investors can typically add funds to their SSC accounts at their discretion, with maturities often renewing automatically into a similar certificate.
